2004 (10) TMI 69 - HC - Income Tax

Penalty difference between the assessed and the returned income - reduction in profit - the assessed income was more than 80 per cent, of the returned income being Rs. 1,63,850 as against the returned income Rs. 71,870 - onus was on the applicant which it had failed to discharge as no explanation whatsoever was given by assessee before the Assessing Officer - Moreover, the Tribunal has recorded a clear finding that by debiting the amount of purchase of goods at Rs. 51,314.74 twice, the profits have been reduced - Tribunal was legally right in holding that the provisions of the Explanation to section 271(1)(c) were attracted to the case -Tribunal was justified in levying the penalty

Summary

Issues:
Interpretation of the Explanation to section 271(1)(c) of the Income-tax Act, 1961 regarding penalty for concealing income.

Analysis:
The case involved a dispute regarding the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961 for concealing income. The Tribunal referred the question of law to the High Court whether the Explanation to section 271(1)(c) was applicable in the case. The applicant had filed its return showing a lower income, but the assessment revealed a higher income leading to penalty proceedings. The penalty was imposed due to a discrepancy in the purchase account, where an amount was debited twice, suppressing profits. The Commissioner of Income-tax (Appeals) initially deleted the penalty, but the Revenue appealed to the Tribunal, which allowed the appeal.

The applicant argued that the double entry in the purchase account was an error and did not impact profits, thus penalty was not justified. However, the Revenue contended that as the applicant did not provide any explanation during the penalty proceedings, the Explanation to section 271(1)(c) applied, shifting the burden of proof to the assessee.

The court discussed the legal precedents and the impact of the Explanation to section 271(1)(c) introduced by the Finance Act, 1964. The court noted that the burden of proof now lies on the assessee to show that the failure to report correct income was not due to fraud or neglect. The court cited various judgments highlighting the shift in burden of proof to the assessee due to the Explanation.

Ultimately, the court found that the Explanation to section 271(1)(c) was applicable in the case as the assessed income significantly exceeded the returned income, and the applicant failed to provide any explanation to the Assessing Officer. The Tribunal's decision to uphold the penalty imposed by the Income-tax Officer was deemed justified by the court, ruling in favor of the Revenue and against the assessee. No costs were awarded in the judgment.